Sustainability & Investors Do Go Together

By Bryant Nail, Executive Vice President, Multifamily Development, PM Realty Group: How sustainability could provide a three-pronged benefit to real estate’s investment value.
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The investor’s role in commercial real estate may seem far removed from green building or sustainable property operations, but in truth the critical decision to fund construction or purchase a completed apartment complex, office building or other asset may hinge on the additional value created through sustainable development practices. Taking responsibility to minimize a property’s environmental impact provides ecological, social, and economic benefits that can deliver a three-pronged benefit to the real estate’s investment value.

That means the developer has a compelling incentive to build sustainably as a means of presenting the best possible value to the investor. In the process, that developer is also serving the community and positioning itself to capture future business

The Three-Legged Stool

Environmental impact: The most obvious benefactor from green building is the environment itself. Buildings account for half of the energy consumption in the United States, outstripping transportation. More efficient buildings conserve fuel, producing less greenhouse gases. Smarter construction reuses waste material or diverts it to recycling facilities rather than to landfills, just as using recycled building materials lessens landfill requirements.

Selecting native plants and harvesting rainwater for landscape irrigation conserves the community’s drinking water. Choosing paints, floor coverings and other interior materials that emit fewer volatile compounds provides cleaner air for tenants and their visitors. Sourcing materials from nearby suppliers can slash transportation requirements, reducing vehicle emissions and reducing cost.

These environmental gains are measurable under programs such as the Leadership in Energy and Environmental Design or LEED program, and provide the basis for enhanced market value. That value manifests as economic and social impact, which together with environmental gains form a three-legged stool of value generation through sustainability.

Economic impact: Efficient buildings increase an owner’s net income by reducing operating costs. Experience has proven that tenants and residents will pay higher rental rates when they can anticipate lower utility bills for an energy-efficient space, even as the owner enjoys lower expenses for the common areas and vacant spaces.

Commercial tenants and apartment renters alike value well-designed spaces that harvest natural light rather than relying exclusively on electrical lighting, or maintain higher standards for indoor air quality. Likewise, a company competing for talented workers will pay a premium for a work environment that enhances its reputation for protecting the environment, because many young workers today weigh an employer’s environmental policies in deciding where to work.

Investors know the value that tenants place on sustainability. The enhanced prospects for occupancy and rental income that come with a well-designed green development may persuade a buyer to pay a higher price to acquire the property.

Social impact: Sustainability is part of mainstream culture today, and developers who ignore green building will lose business to those the community believes are taking steps to protect the environment. Many individuals, and the companies that those individuals populate, feel a responsibility to protect the environment, and want to be a part of sustainable efforts in the places where they chose to live and work.

Apartment residents and commercial tenants can embrace a strong, well-publicized sustainability program and know that they are helping to make a significant contribution to resource conservation and environmental protection. If these end users value sustainability – and they do – then the investor has an interest in whether the property satisfies those users’ expectations.

A developer that consistently pursues the environmental, economic and social benefits of sustainable design will not only enhance the appeal of its individual projects for investors and end users; that company will also develop a reputation as a champion of environmentally responsible practices, building its brand to attract future business.